A Topsy-Turvey Marketplace Guide to Buying Versus Renting
by Michelle on February 9th, 2009
If you are considering buying a house, one of the first decisions you need to make is whether buying a house instead of renting one is right for you. Many people think that buying a home is one of the smartest financial decisions they will ever make. According to the Federal Reserve’s Survey of Consumer Finances, there is a significant gap between the wealth accumulated by homeowners and that accumulated by renters. But in this topsy-turvy marketplace, does this piece of conventional wisdom still hold true? Let’s take a look at some of the issues you should consider when making this decision.
There are distinct advantages to buying if the following are true:
1. You plan to stay put at least three years and preferably more. It can take three to six years for a home to appreciate enough to offset the costs of selling and moving. If you know your job or other circumstances will force you to relocate in less time, it’s probably better to rent.
2. You’re psychologically prepared. Home ownership means dealing with whatever comes up — from noisy neighbors to leaky plumbing. You can’t just call the landlord for help or pack up and move as easily as when you were renting.
3. You have some extra savings. Home buyers who spend every dime they have buying a house can be blindsided by repairs, maintenance and all the other costs of owning a home. It’s important to have some savings after your purchase to be able to meet these expenses.
4. You manage your money well. Home ownership builds wealth through the forced savings of paying down a mortgage, and through appreciation — the rise in the home’s value over time. That forced savings aspect only works if you leave the equity in your home alone, and only tap it for important things or emergencies. Otherwise, it’s too easy to drain away your wealth with home equity loans and lines of credit.
If you answered yes to all four questions, then homeownership could be right for you. Despite the downturn in the real estate market, homeownership is still the way most people start building their personal wealth. In addition to providing shelter, homeownership also gives families a sense of security and is the foundation for vibrant, stable neighborhoods. First-time homebuyers have a particular advantage right now with home prices at their most affordable level in years. In my next blog, I’ll write about the issues all first-time homebuyers should know before they buy a home.
Tags: community development, green banking, home ownership, ShoreBank, triple bottom line
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